Weighted Alpha

Posted in Finance, Accounting and Economics Terms, Total Reads: 1082

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Definition: Weighted Alpha

A method of using a weighted metric to calculate how much a share has gone up or down over a certain period, normally a year. In general, more thrust is placed on most recent actions by assigning higher weights to it than those assigned to past movements. This assists to give a return figure that has a stronger focus on the most current period and is thus a better measure for short-term analysis. This technique is highly famous among technical analysts.

If the share was up over the period, its alpha will be positively weighted. If the stock price remains unchanged, then there is a small weighted alpha. A share whose price has decreased over the period will possess a negatively weighted alpha. Financial analysts use this metric to identify firms that have shown a good trend over the past year and, more importantly, to concentrate on organizations who have been building momentum over the time period.

Why we look at Weighted Alpha?

As already explained, weighted alpha is a measure of annual growth with a focus on the most recent price changes. A positively Weighted Alpha shows the share price is moving upwards and a negative Weighted Alpha shows the share price is moving downwards. Obviously, when one is thinking of buying a share, he or she would want to buy shares of a company that is increasing in value and not depreciating in value.

Hence, this concludes the definition of Weighted Alpha along with its overview.

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